Author: Avni Tripathi, Student of National Law University and Judicial Academy, Assam
ABSTRACT
This article explores the often-unseen barriers of financial exclusion in India, emphasizing how structural obstacles and algorithm-driven decision-making continue to prevent marginalized groups, such as Scheduled Tribes, women, prisoners, and undertrials from accessing banking and credit services. Despite constitutional protections under Articles 14, 15, and 21, along with initiatives like the Pradhan Mantri Jan-Dhan Yojana, deep-rooted biases still influence both traditional and digital financial systems. While recent fintech innovations and automated lending practices are praised for broadening credit access, they frequently mirror existing social hierarchies by unfairly rejecting or disadvantaging applicants based on caste, gender, or economic vulnerability. Besides, prisoners and undertrials remain invisible within the legal framework governing financial services, which further excludes them and undermines their dignity and potential for rehabilitation. By analysing Supreme Court rulings, RBI policies, and international human rights standards, this article emphasizes that financial exclusion is more than an economic issue it is a constitutional violation. The piece argues for a rethinking of financial law to better address widespread inequalities and algorithmic biases, promoting true equality and comprehensive citizenship. Finally, it advocates for a rights-based approach that combines constitutional principles with regulatory reforms to eliminate discrimination across both physical and digital banking environments.
Financial inclusion has been a long-standing priority in India’s policy and constitutional framework. However, many groups especially Scheduled Tribes, women, and those in prison or awaiting trial still remain largely unseen within the formal banking system. Initiatives like the Pradhan Mantri Jan-Dhan Yojana (PMJDY) have helped more people open bank accounts, but underlying barriers to participation continue to exist. Data from the World Bank’s Global Findex Database 2021 shows that while about 80% of Indian adults have a bank account, usage rates among marginalized communities are still very low. For example, according to the 77th Round of the National Sample Survey Office in 2019, Scheduled Tribe households have much less access to formal credit compared to other groups.
This exclusion is not just a matter of structure anymore; it is becoming more about how algorithms operate. With the growth of fintech and digital banking, many credit decisions are now made by automated systems that depend on data reflecting existing social and economic disparities. Experts have raised concerns that if unchecked, algorithm-driven lending could inadvertently deepen caste, gender, and tribal inequalities. This raises constitutional issues because financial exclusion directly challenges the guarantees of equality under Article 14 and non-discrimination under Article 15 of the Indian Constitution. The Supreme Court, in E.P. Royappa v. State of Tamil Nadu, emphasized that equality and arbitrariness are fundamentally opposed. Whether banking policies are implemented by humans or machines, exclusionary practices can be seen as arbitrary, and therefore unconstitutional.
Furthermore, preventing access to financial services threatens the fundamental rights to life and dignity outlined in Article 21, as broadly interpreted in Maneka Gandhi v. Union of India. The Supreme Court has consistently recognized social and economic rights as part of Article 21, emphasized in Francis Coralie Mullin v. Union Territory of Delhi, where the focus on human dignity is central to constitutional protections. Denying tribal communities or prisoners’ genuine access to banking services effectively renders them invisible and deepens their social and economic marginalization.
For prisoners and individuals under trial, the challenges they face are even more pressing. The National Crime Records Bureau’s Prison Statistics India 2021 emphasizes that many incarcerated people have no access to basic financial services, including remittances from their families. The lack of clear regulatory guidelines for providing banking services to prisoners exposes an important gap in our legal framework. In People’s Union for Democratic Rights v. Union of India, the court reaffirmed that fundamental rights must extend to marginalized and voiceless groups. Excluding prisoners from the financial system is not only discriminatory but also conflicts with India’s overall approach to rehabilitative justice.
From a gender perspective, algorithmic bias in lending only deepens existing inequalities. Automated systems that use factors like employment history, property records, or credit scores often unfairly disadvantage women, particularly those working in informal sectors. The Supreme Court’s decision in Anuj Garg & Ors vs Hotel Association of India & Ors reaffirmed that laws or policies rooted in stereotypes about women’s roles are unconstitutional. Algorithms in lending that produce such biases risk reinforcing the very stereotypes that the Constitution aims to challenge and eliminate.
The Reserve Bank of India (RBI) has emphasized financial inclusion as a key policy goal, as outlined in its Master Directions on Priority Sector Lending. However, these guidelines don’t fully address emerging risks like digital exclusion and algorithmic bias. The 2022 Report on Trends and Progress of Banking in India acknowledges issues related to digital inequality, especially in rural and tribal regions, but regulatory measures remain limited. Without explicitly recognizing algorithmic exclusion as a constitutional concern, there is a real risk that India could deepen financial disparities even as more people gain access to formal bank accounts.
A legal framework based on substantive equality, as established in cases like Justice K.S. Puttaswamy (Retd.) v. Union of India, provides a critical constitutional perspective. The court emphasized the significance of privacy, dignity, and autonomy in the digital era. Building on this reasoning, ensuring fair and non-discriminatory access to financial systems should also be seen as a fundamental part of protecting individual autonomy and dignity. Any structural or algorithmic obstacles that hinder financial inclusion for marginalized groups like Scheduled Tribes, women, and prisoners must be viewed as violations of constitutional equality and fundamental rights, rather than just policy shortcomings.
India’s legal history shows a pattern of expanding rights through judicial innovation, especially when faced with widespread exclusion. Today, we confront a similar challenge with the so-called invisible citizens of finance, those overlooked by algorithms, policies, and institutions. To address this, we need to strengthen the Reserve Bank of India’s oversight of algorithmic lending, ensure greater transparency in credit scoring models, and establish legal guarantees for banking access for prisoners and marginalized groups. Doing so would bring financial law in line with the principles of our Constitution. Only by taking these steps can India truly achieve financial inclusion, making sure no citizen is left unseen by the law or the market.
FREQUENTLY ASKED QUESTIONS (FAQs)
What does “financial exclusion” mean in Indian law?
Financial exclusion happens when individuals or groups are unable to access essential banking services like savings accounts, credit, insurance, or digital payments. In India, this issue often hits vulnerable communities hardest, especially Scheduled Tribes, women, prisoners, undertrials, and other marginalized groups. The Supreme Court emphasized in Olga Tellis v. Bombay Municipal Corporation, (1985) 3 SCC 545 that access to livelihoods and dignity is a fundamental right, and being shut out from financial services directly threatens these rights.
How does algorithmic bias impact financial inclusion?
Algorithmic lending platforms use digital data to assess creditworthiness. However, these algorithms may unintentionally replicate social inequalities by penalizing individuals with limited digital footprints or belonging to historically disadvantaged groups. For instance, women with informal income sources or undertrials without regular employment records may be algorithmically deemed “high risk,” leading to systemic denial of loans.
Are there any legal remedies against discrimination in banking?
Yes, Articles 14 and 15 of the Constitution of India prohibit discrimination by the State on the basis of caste, sex, or other grounds. Although private banks and fintech companies are not always directly bound by constitutional duties, the Reserve Bank of India (RBI) regulations impose obligations of fair banking practices. Moreover, courts have extended constitutional principles to private actors in cases involving fundamental rights, as in K.S. Puttaswamy v. Union of India, (2017) 10 SCC 1.
Why are prisoners and undertrials excluded from banking access?
Indian financial law does not explicitly address the banking rights of prisoners and undertrials. As a result, they are often denied the ability to open accounts or receive benefits under government schemes such as the Pradhan Mantri Jan-Dhan Yojana. This exclusion violates their constitutional right to dignity under Article 21 and undermines rehabilitation, which has been recognized by the judiciary as part of the correctional justice system.
How is financial exclusion a constitutional wrong and not just an economic issue?
Financial exclusion prevents marginalized groups from enjoying basic rights to livelihood, dignity, and equality. The Supreme Court in Navtej Singh Johar v. Union of India, (2018) 10 SCC 1, emphasized substantive equality, meaning the law must actively correct historical disadvantages. Denial of banking services entrenches inequality and therefore violates the constitutional vision of inclusive citizenship.
What reforms can address structural and algorithmic exclusion in banking law?
Reforms may include:
Mandating algorithmic transparency in fintech lending.
RBI issuing guidelines prohibiting discriminatory denial of credit.
Recognizing prisoners’ right to open bank accounts as part of Article 21.
Strengthening data protection laws to prevent misuse of financial data.
Incorporating substantive equality principles into banking regulation.
References
1 World Bank, The Global Findex Database 2021 (2022).
2 National Sample Survey Office, Household Social Consumption on Education in India, 77th Round, Ministry of Statistics and Programme Implementation, Govt. of India (2019).
3 Vidushi Marda & Amber Sinha, FinTech Lending in India: Taking Stock of Implications for Privacy and Autonomy, 6 Indian J.L. & Tech. 1 (2022), https://repository.nls.ac.in/cgi/viewcontent.cgi?artic le=1150&context=ijlt.
4 The Constitution of India, arts. 14-15.
5 E.P. Royappa v. State of Tamil Nadu, (1974) 4 S.C.C. 3 (India).
6 Maneka Gandhi v. Union of India, (1978) 1 S.C.C. 248 (India).
7 Francis Coralie Mullin v. Union Territory of Delhi, (1981) 1 S.C.C. 608 (India).
8 National Crime Records Bureau, Prison Statistics India 2021 (2022).
9 People’s Union for Democratic Rights v. Union of India, (1982) 3 S.C.C. 235 (India).
10 Anuj Garg & Ors vs Hotel Association of India & Ors, 2008 (3) SCC 1
11 Reserve Bank of India, Master Directions on Priority Sector Lending – Targets and Classification (2020).
12 Reserve Bank of India, Report on Trend and Progress of Banking in India 2022 (2023).
13 Justice K.S. Puttaswamy (Retd.) v. Union of India, (2017) 10 S.C.C. 1 (India).
